Debt consolidation simply involves taking all your debts (student loans, credit card, mortgage, car loan, etc.) and combining them into one easy monthly payment. If you have a large number of debts, or find yourself in a situation where you are not able to meet monthly payments, debt consolidation can be quite useful.
A debt consolidation agency will help pull all your debts together. They will also usually negotiate with your creditors to get a lower interest rate, and possibly to remove certain fees from your debt. If you have very high debt that you are unable to pay, a debt consolidation agency may even be able to reduce the amount you will owe.
As part of debt consolidation, you may be asked to take out a loan at a lower interest rate than your current debt. While taking on further debt may sound counterproductive, remember your old payments will be rolled into this one debt. So a carefully selected loan with a lower interest rate can really help in paying off outstanding debts.
Debt consolidation agencies have come in for a bit of a flak in recent years because of the unethical practices of some agencies. Typically, a debt consolidation agency makes money from the creditors. Thus, if you don’t pay back your debt, they make nothing. This has led some agencies to adopt predatory tactics that are designed to extract your money, while pushing you further into debt.
But remember there are hundreds of highly reputable debt consolidation agencies out there. These agencies are genuinely interested in helping you map out a payment plan, will negotiate with creditors for a payment suitable to your pay check, and will generally help guide you our of your debt situation.
See if you can find reviews of the different debt consolidation companies on the internet. Look for reviews from real customers to help you make up your mind about which agency to hire. Debt consolidation be extremely useful in helping you pay off your debts, but only if you take the time to research the right debt consolidation company.